Banking and credit union regulators have issued a number of proposed and final rules, and issued changes in policies, to carry out the requirements of this year’s regulatory relief law. But as much as they’ve done to date, the work they have ahead of them is significant and complex.
An Oct. 2 Senate Banking Committee hearing included witnesses testifying on behalf of each of the agencies regarding their progress implementing the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155): Joseph Otting, comptroller at the Office of the Comptroller of the Currency (OCC); Randal Quarles, vice chairman for supervision of the Federal Reserve Board; Jelena McWilliams, chairman of the Federal Deposit Insurance Corp. (FDIC); and J. Mark McWatters, chairman of the National Credit Union Administration (NCUA) Board.
In that hearing, the regulators gave an overview of what’s been accomplished thus far – the Volcker Rule is out for comment still, for example, and 18-month examination cycles have already been extended to more banks under the law. Additionally, credit unions are able to exclude more of their loans from their federal member business loan cap.
These are just a very few of the actions taken to date, but many more have yet to be addressed in proposed rulemaking. Based on their Oct. 2 testimony, here are some of the other changes yet to come:
Community bank leverage ratio
To simplify capital requirements for small banks, Section 201 of EGRRCPA requires regulators to create a “community bank leverage ratio” of not less than 8% and not more than 10%; certain community banks exceeding the ratio will be considered to be in compliance with all other capital and leverage requirements. The ratio will be available only to institutions having less than $10 billion in consolidated assets and which engage only in traditional banking activities. The agencies are looking at how to harmonize this provision with statutory provisions not affected by EGRRCPA.
Asset threshold for short-form call report
Section 205 of the Act provides for reduced reporting requirements on call reports for the first and third quarters for banking institutions that (1) have less than $5 billion in total consolidated assets and (2) satisfy “such other criteria as the appropriate Federal banking agencies determine appropriate.” McWilliams said the banking agencies intend to issue a proposed implementing rule for comment in the “very near term.” Quarles said the Fed Board plans to provide relief in the short term, with additional simplifying changes to follow later. (This may or may not indicate the possibility of an interim final rule.)
McWilliams, in her testimony, said the agencies’ efforts on this provision will build on work already done by a call report burden-reduction initiative of the Federal Financial Institutions Examination Council (FFIEC), which includes introduction of a streamlined call report for institutions with domestic offices only and total assets of less than $1 billion. She said this reduced the length of the call report for eligible small institutions from 85 to 61 pages.
Exemption from real estate appraisals for certain rural RE transactions
Section 103 of the act provides an exemption from appraisal requirements for federally supervised financial institutions’ rural real estate transactions involving less than $400,000 and for which no state-certified or state-licensed real estate appraiser is available to perform services, under specific circumstances. The exemption doesn’t apply where regulators require an appraisal for safety and soundness or to high-cost loans.
This provision applies to both banks and credit unions. NCUA included proposed language for the exemption in a real estate appraisal rule proposal in September largely focused on commercial real estate loans; the agency is accepting public comments until Dec. 3. Still to come is a rulemaking by the Fed, FDIC and OCC.
Stress testing
Regulatory changes have yet to be proposed or finalized, but banking regulators note they have stopped requiring supervisory and company-run stress tests for bank holding companies (BHCs) with less than $100 billion in assets. BHCs under $100 billion were exempt upon the law’s enactment; depository institutions under $100 billion, by statute, become exempt in November 2019. Given that, the agencies delayed the due date for the company-run stress tests until then, allowing time for the rules to be modified.
In addition to the changes to the company-run stress testing thresholds discussed above, section 401 of the Act amends the required frequency of stress testing from annual to periodic and reduces the required number of scenarios from three to two.